Chapter 3: Users of Accounting Information

The primary objective of accounting is to provide information that is useful to parties (persons and
groups) inside and outside the business or corporation. These parties are called users. Through accounting
information, users are able to analyse and understand what is happening in the company.
Two Kinds of Users:
 External users
 Internal users

External Users
External users are people outside of the company. This means that they do not work in the company
and are not directly involved in its operation. They are only interested in the information generated by financial
records in the accounting procedures of a company.
Examples:
 Creditors
 Investors
 Government and tax authorities
 Regulatory agencies
 Customers and consumers
 Competitors
 Lawmakers and economic planners

Financial accounting is the branch of accounting that is directed to external users. Thus, the main
source of information for these users is the financial statement.
 Statement of Comprehensive Income- shows the financial performance of business for a certain period.
 Statement of Retained Earnings- tells how much of the company’s net income is reinvested in the
business.
 Statement of Financial Position- tells what the company owns and owes after a specific period of time.
 Statement of Cash Flows- indicates who or what the company’s source of income is and where it is
being utilized.

Internal Users
Internal users are the people within the company who are directly involved in the business operations.
Examples:
 Owners
 Managers
 Employees and trade unions

Even though external and internal users are two different group of people, both types of users depend
on the same source of financial information—the financial statements. Some additional sources of information
for internal users include:
 Audited statements- validated financial statements which verify the accuracy of data presented. These
ensure the owners and managers that the accounting procedures were conducted efficiently and that
the resulting data are correct and factual.
 Income tax returns- the information from income tax returns allows managers and owners, and even
employees, to determine if proper payment of their taxes had been secured by the company and has
been examined by the BIR.
 Purchases and cost reports- Managers may have cost-control reports that can serve as sources of
data which include every cost incurred during all business operations.
 Type Category Decision to Make Information Needed
External Creditors, lenders, Approve, grant, or decline loans to Financial statements
debtors business owners (especially income
statement and balance
sheet) and income tax
returns
External Investors Decide whether or not to invest Financial statements
and/or buy shares of a company
External Government Assess the tax liabilities of the Financial statements
company (particularly income
statement and balance
sheet)
External Regulatory agencies Check if the company complies with Financial statements
or violates the set rules and
regulations to protect its
stakeholders
External Customers and Determine how long Financial statements
consumers customers/consumers can depend (specifically income
on the business for its products and statement and balance
services and if they are being sheet)
rightfully charged with the
appropriate fees in exchange of the
products or services they receive
External Competitors Assess the strategies used by the Financial statements
business in contending with its
competitors and the financial status
of the business compared to its
competitors
External Lawmakers and Determine the changes to be made Financial statements
economic planners on existing laws to attain economic
stability and improvement
Internal Owners Decide the goals of the business All types of financial
based on its profitability and statements, audited
longevity statements, income tax
returns, purchase and
cost reports
Internal Managers Decide whether or not the company All types of financial
is being supervised well under their statements, audited
supervision statements, income tax
returns, purchase and
Check what needs to be improved cost reports
on and/or discontinued from the
business operations
Internal Employees and trade Evaluate the employment conditions Financial statements
unions and earning capacity of the company (particularly income
statement, balance sheet
Decide whether or not to stay in the and cash flow), audited
company based on their assessment statements, income tax
of the company’s stability and growth returns, purchase and
cost reports